In managing home loan debt it’s always important to take an active approach. Specifically, home loan borrowers should stay abreast of interest rates and where the markets believe they are going. This is critical as it could save or cost you thousands of dollars, if you make the right or wrong decision to fix.
There are some key rules that home loan borrowers should remember. These are:
The yield curve is a line that starts with today’s cash rate and plots all market rates, (e.g. 90 day bank bill swap rate) to longer dated interest rates, e.g. 10 year Australian Government Securities (bond rate).
The Reserve Bank of Australia has been reducing interest rates; however there will come a point in the economic cycle when it will stop doing so, increasing the probability of a cash, then home loan rates rise.
In determining whether to fix your home loan, it is important to consider where in the economic cycle interest rates are, in relation to the yield curve. If it’s negative then rates could fall further, but be careful as the banks may only reduce their variable rate and not their fixed rate loans.
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